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Too much solidarity could cause Europe to fail

08.08.2012 - Interview

In an interview with the magazine Focus, Minister Westerwelle warns against expanding the ESM rescue fund and against too much solidarity while saving the euro. The questions were put by Daniel Goffart and Olaf Opitz. Published on 4 August 2012 in Focus Online.

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Minister, you are currently on vacation in Spain. Would you buy Spanish government bonds? More than seven per cent return is really not a bad deal.

I am a Foreign Minister, not an investment advisor. As for Spain, the country has a strong economy. It has made considerable progress in terms of reform and can serve all of Europe as a bridge to Latin America, which is booming.

The financial market’s faith in the euro has fallen to a new low, in any case. Once again, Germany is to take on the role of a saviour. Aren’t expectations too high?

I don’t share your opinion regarding the euro. Our currency is very stable...

...but high interest rates for the government bonds of states in crisis tell another story.

The interest rates are around where they were before the euro was introduced. Many people forget that. When the euro was introduced, interest rates in most countries dropped significantly. That led some countries to choose to borrow money cheaply and go into debt rather than tackle unpleasant reforms. Today, the citizens of the affected countries are paying a high price for the failures of their governments. I feel sorry for the people, but thoroughgoing consolidation is indispensable. You cannot solve a sovereign debt crisis by accumulating more and more new debt.

...Everyone can see that we have put large sums on the line. Germany has taken on liability in excess of 150 billion euros for just the current support programmes. That’s a lot...

...but not too much?

No. Germany’s support is not risk-free, but on the whole it is justifiable. I also do not see any reasonable alternatives that might have a better chance of success and carry less risk. If the euro fails there would be incalculable economic and financial damage. All the critics who prefer to stir up resentment or serve up outdated clichés should keep that in mind.

Criticism of saving the euro is popular in Germany, even within the governing coalition.

Constructive criticism is welcome. Still, I think there are too many politicians all over Europe who are cooking up a nasty renationalization brew over the fire caused by the crisis. Everyone should consider what is said and how it is said. Here, too, it’s not what you say, but how you say it. That is also clear to the many millions of Germans now enjoying their vacations in Europe, travelling freely across borders and paying with their own currency in many countries. Today, we can all freely choose where to work or study throughout all of Europe. If we call part of Europe into question, everything will quickly come off the rails. Europe has its price, but also its value. That is true for freedom just as it is for preserving German jobs.

Most euro area countries want the ESM rescue fund to buy unlimited amounts of bonds from countries in crisis. Do you support this plan?

The German Government can approve neither the joint and several liability for Europe’s debts nor liability for the unknown. That also applies to the proposal currently being discussed of granting the ESM a banking licence. That would also mean unlimited liability for us for unknown risks. That would be incompatible with our constitution.

The Social Democratic Party and the Greens, who have so far supported the Government’s policy on Europe, have spoken out in favour of that.

On this issue our opposition parties are letting themselves be too much influenced by the policies of taking on debt of other socialists in Europe.

Would there even be a majority in the Bundestag for such a banking licence for the ESM?

The Bundestag is the guardian of German taxpayers’ money. I cannot imagine that there would be a majority in the Bundestag for a policy of unlimited joint and several liability for Germany. As a member of that body, I, in any case, could not vote for it.

Would taking on such a liability be conceivable if the fiscal union were completed?

No, it is not a question of timing. Even when Europe is more integrated, issuing eurobonds or assuming liability for all European debts would be a grave mistake in construction. Too much solidarity could also cause Europe to fail, if we demand too much of ourselves and too little willingness to reform from others.

The investors in the markets will not let up until they have forced Germany, Europe’s biggest, most stable economy, to share liability for European debts. Everyone who provides loans looks for maximum security.

I do not believe in this conspiracy theory of so called speculators. The investors in the markets are also managing the money of pension funds and savings plans. They are acting rationally and looking for the most secure places with good interest rates. However, as a responsible politician, who is an advocate of the social market economy, it is not my job to satisfy the markets in the short term or boost a stock index. We must provide sustainable solutions to the debt crisis that protect our currency, our economy and our prosperity.

What kind of solutions?

The motto should be “better spending”, not “more spending”. We need an Agenda 2020 for more competitiveness throughout Europe. We need far-reaching reforms in the entire euro area. That takes time and patience, as we have seen in Germany. I cannot understand why the Social Democratic Party and the Greens, who launched the successful Agenda 2010 in Germany, now want nothing more to do with it and want to undo it all again.

But citizens fear for their savings and are afraid that too much will be demanded of Germany. Do you still believe that the countries of southern Europe are willing to reform?

Yes, even if the strength of the will to reform varies from country to country. Please do not forget the progress made in Portugal, Spain and Ireland. I did find it unsettling that the political forces in Greece for some time demonstrated a measure of self-absorption inappropriate in such a difficult situation before agreeing on the necessary austerity package after the elections.

What would be the alternative?

We do not want to withhold our solidarity in exchange for solidity and reform. Otherwise we would be deliberately risking the break up of the euro. I understand the concerns and doubts of many citizens and even parliamentarians. We have to constantly keep convincing them, because it would be much more expensive for Germany if the euro failed.

At the moment the troika is checking to see if reforms in Greece are moving forward on schedule. Many people think that the troika will find that they are not. If that is the case, can Athens be given further aid?

I am not going to speculate about the results of the troika report. Its experts must have first say in the matter. Giving the false impression that we have written off Greece would just strengthen the forces there that reject a policy of reform. It is crucial for all parties to stick to what has been agreed. We want Greece to remain part of the euro area. However, that lies in Athens’ hands. One thing is unacceptable: agreeing on aid programmes but calling the promised reforms into question.

Let me ask the question another way: would a Greek exit still scare you?

Again, we want to keep the euro area together. When the debt crisis erupted two years ago, the German Government was criticized for just buying time with the guarantees. I never understood why that was such a bad thing. After all, we used the two years to stabilize the euro area and reduce incalculable risks.

The leader of your party, Philipp Rösler, says that the exit scenario lost its ability to frighten long ago. Has he gone too far?

The entire German Government is working towards overcoming the debt crisis in Europe and preserving the euro area. Philipp Rösler quite rightly pointed out that any aid is contingent on promises being met and reforms being implemented.

The Christian Social Union is speculating openly about a Greek exit.

Germany’s economy and also Bavaria’s is tightly linked to the fate of Europe. Länder as strong in exporting as Bavaria especially need Europe to be successful. Whoever bears political responsibility should not speak too hastily and tear down what has been laboriously built up in Europe over decades. The time should be past in Europe when resentment was stirred up to promote an advantageous climate in domestic politics.

Germany, just like Malta and Cyprus, has only one vote in the ECB. Is that still appropriate given the distribution of the burden in the crisis?

Of course it has been a problem since Europe was founded that economic and demographic size is not adequately reflected on some bodies and in some situations. Given its economic strength and the size of its population, Germany certainly needed more weight, but the situation has improved in the last two years.

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So what are you doing on your island vacation? Tending the finca’s garden? Or does the telephone ring constantly for the Minister?

More the latter, unfortunately. The global situation does not break for vacation. The debt crisis in Europe and the conflict in Syria make dozens of phone calls necessary every day. For me, vacation means working a little less. But I jog a lot, eat regular meals, and have already dropped four kilos – that’s good, too.